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So far we have learnt that in order to place an order in Forex, one has to sell a currency and buy another. Or buy a currency and sell the other.
Simply put, selling and buying of currencies go in hand. And when done well, you should start making money in Forex without brakes.
Is this something you really yearn for?
Are you ready to execute your first trade and start making money in Forex?
If you answered YES to both questions then this post is for you.
All you have to do is, exchange one currency for another expecting that the price will change.
It make sense if the your prediction is correct because then you will make money off your forecasts.
The example below shows how to make money trading Forex in Kenya.
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Wondering how we got to $700 in profits?
This is how we reached at the $700 weekly profits.
We took advantage of the exchange rates.
In scenario 1 we bought 10,000 Euros at an exchange rate of 1.1800.
EUR 10,000 x 1.18 = $11,800 (spent).
In scenario 2 we sold 10,000 Euros at an exchange rate of 1.2500.
EUR 10,000 x 1.25 = $12,500 (received).
Profits = $12,500 (received) – $11,800 (spent) = $700.
In perspective, the exchange rates are there to guide you on how many of the second currency (quote currency) you need to buy the first currency. And how many of the second currency you’ll get if you sell the first currency (base currency).
Beginners Guide to Reading Forex Quotes.
I will begin by reiterating what we learnt in lesson 2 and 1 simultaneously.
Currencies traded in Forex are always quoted in pairs.
Because in every exchange transaction you do in Forex, you will have to buy and sell two currencies at one and the same time.
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The table below shows examples of commonly traded currency pairs.
PAIR COUNTRY OF ORIGIN MEANING EUR/USD Eurozone/USA Euro – US dollar USD/JPY USA/Japan US dollar – Yen GBP/USD United Kingdom/USA Pound sterling – US dollar USD/CHF USA/Switzerland US dollar – Swiss franc USD/CAD USA/Canada US dollar – Canadian dollar AUD/USD Australia/USA Australian dollar – US dollar NZD/USD New Zealand/USA New Zealand dollar – US dollar
The image above shows the EUR/USD pair with an exchange rate of 1.11400 .
The first currency is the base currency (EUR) while the second currency (USD) is the quote currency.
The exchange rate guides you on how much of the the quote currency you need to purchase one base currency.
From the example above, you will pay 1.11400 (USD) to get 1 EUR.
On the flip side, the exchange rates guide traders on how many units of the quote currency to expect if you sell 1 base currency.
Still using the example above, you will get 1.11400 (USD) for every single EURO you sell.
That said, how can you make money trading Forex?
- Place an order on price rise if you believe that the base currency will become more expensive in relation to the quote currency.
2. Sell the currency you are holding if you believe that the price of the base currency will fall lower than what’s currently shown as the quote price.
Common Terms Used When Buying or Selling Currencies.
Going Long Vs Going Short .
Going long means buying the base currency and selling the quote currency — going short on the other hand means selling the base currency and buying the quote currency.
When you go long, you are predicting that the base currency will increase in value.
Wait and sell at a higher price to make profits.
Selling (going short) on the other hand means you are predicting that the value of the base currency will fall.
Buy back when the price has gone down to make profits.
Bid Price .
This is the best price which your broker (trade with XM) is willing to buy the base currency for the quote currency.
Whatever currency you want to sell, the broker will buy it from you at the bid price.
Ask Price .
This is the price at which your broker (trade with XM) is willing to sell the base currency for the quote currency.
Whatever currency you want to buy the broker will sell it to you at the ask price.
What is a Spread in Forex?
A spread is difference between and ask price and the bid price.
You will see both the ask price, the bid price and the spread quoted against each pair on the XM trading platform.
This makes it easier for you to trade.
Just click on the sell button in your trading area to sell a pair and the buy button to buy another pair.
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